Debit, Credit, or Bitcoin?

Will that be debit, credit, or bitcoin? Could bitcoin become that ubiquitous? Those wily Winklevoss twins and the rest of the Bitcoin community have been working to remove the stigma of illegitimacy from the virtual currency, but they want to do so without any additional “draconian” regulation that might interfere with its spread and use. This past week, however, has been a mixed bag of success and setback.

For those not in the know, bitcoin is a decentralized, nongovernmental, virtual currency that operates like cash for online transactions. In order to utilize bitcoin, you must first visit an online exchange to trade “real” dollars (or other currency) for virtual ones. One correspondent aptly described Bitcoin as “a lot like cash – for the online universe. It doesn’t actually exist in the physical world. . . . There is no center to the whole bit coin system. . . . It’s a peer-to-peer system, run by the people who use it.” Millions of dollars of bitcoins are exchanged on a daily basis, and as of August 2013, the value of all bitcoins in circulation exceeded $1.5 billion.

Last week, New York State’s top banking regulator, Benjamin Lawsky, convened a hearing to discuss the development of virtual currencies like Bitcoin. The aim of the inquiry was not to establish whether virtual currencies should be regulated, but rather, according to Mr. Lawsky, “[T]o put forward, during the course of 2014, proposed regulatory framework for virtual currency firms operating in New York.”

Just three months ago, Bitcoin managed to shine under the scrutiny of a Congressional hearing, with the majority of testifying witnesses and officials emphasizing bitcoin’s legitimate uses and arguing against the need for additional regulation. Much attention has been paid to the illicit transactions involving virtual currencies, but the Congressional hearing provided a platform to promote their legitimate applications and to express the need for multi-stakeholder engagement on any potential regulation for fear of hampering the growth of the digital economy. Although Bitcoin seemed to win over Washington, “state governments still have the power to control money transmitters – and New York, the home of Wall Street, is the most significant state of all when it comes to financial matters.”

Unfortunately, the recent hearing in New York was marked by high-profile legal action against Charlie Shrem, CEO of the BitInstant bitcoin exchange, and an underground bitcoin exchanger Robert Faiella for a “scheme to sell and launder over $1 million in bitcoins related to Silk Road drug trafficking.” The now-defunct Silk Road was a notorious online criminal forum through which many transactions for drugs and other contraband were conducted utilizing bitcoin. But promoters of the virtual currency have been adamantly trying to distance the currency from criminal connotation; after all, the currency itself is not inherently criminal. Even so, Barry Silbert, the founder of Bitcoin Investment Trust, suggested “it may be appropriate to regulate any transaction that involves an unregulated intermediary converting Bitcoin to dollars on behalf of a third party.”

Bitcoin will likely continue to thrive, but the goal of gaining credibility in mainstream e-commerce (and shedding the stink of illegitimacy) while operating generally free of additional government regulation appears to be turning into more of a pipe dream. As New York regulators struggle to determine the parameters of a potential “BitLicense,” what balance do they strike to ensure regulations that will promote Bitcoin’s credibility rather than stifle its development? What sort of divide may occur among states as places like California vie to become more “Bitcoin-friendly?”

One Response to Debit, Credit, or Bitcoin?

At this point, bitcoin is treated more like a commodity than a currency by its adherents. The fact that it rises and falls like a commodity—with huge crashes and spikes—is a product of many things, including its insanely high value for a currency (~$800 per coin) and its tight cap on the number of bitcoins available. So long as people treat BTC as a commodity, it cannot be a viable currency.

You know what’s great, though? Dogecoin. Dogecoin people only kind of care about making money, and don’t have the “infowars” vibe that Bitcoin has. Dogecoin is the real future cryptocurrency. To the moon!